Bet On It: Sports betting industry gears up for second quarter earnings

Welcome to the latest edition of “Bet On It,” where The Fly looks at news and activity in the sports betting and iGaming space.

SECTOR NEWS: Gaming and Leisure Properties (GLPI) entered into a binding term sheet with Bally’s Corporation (BALY) pursuant to which the company intends to acquire the real property assets of Bally’s Kansas City Casino and Bally’s Shreveport Casino & Hotel as well as the land under Bally’s permanent Chicago casino, and provide construction financing for the Bally’s Chicago Casino Resort for aggregate consideration of approximately $1.585B representing a blended 8.3% initial cash yield. In addition, GLPI secured adjustments to improve the purchase price and related cap rate related to the existing, previously announced, contingent purchase option for Bally’s Lincoln Casino Resort, as well as the addition of a right for GLPI to call the asset beginning on October 1, 2026. GLPI intends to fund construction hard costs of up to $940M at an 8.5% initial cash yield with the remainder to be funded by Bally’s with the sale leaseback proceeds related to Bally’s Kansas City and Bally’s Shreveport along with other funding sources such as Bally’s Chicago’s planned initial public offering and cash flows from operations. Funding is expected to occur from August 2024 through December 2026. GLPI will purchase the real property assets of both Bally’s Kansas City and Bally’s Shreveport for total consideration of $395M. The two properties will be in a new Bally’s Master Lease that will be cross-defaulted with the existing Bally’s master lease with initial cash rent pursuant to the agreement for the two new properties of $32.2M, representing an 8.2% initial cash capitalization rate.

Bally’s announced a refreshed Bally’s Chicago Casino permanent site plan that features a planned 500-room, 34-story hotel tower into a single-phase construction project at the 30-acre former Tribune Publishing site, pending approval of the Chicago Department of Planning & Development. In new renderings released, the future Bally’s Chicago Casino will feature its hotel tower on the southern end of the casino development nearest Ohio Street along the Chicago River. The hotel tower will include a large pool spa, fitness center and sun deck, as well as a rooftop restaurant bar to enjoy the Chicago skyline. Earlier this year, the hotel tower was moved due to unforeseen underground infrastructure and an adjusted design for a two-phase hotel was approved. Bally’s and Gaming and Leisure Properties entered into a binding term sheet for $940M construction funding facility for the Chicago project, along with other financing transactions, that together GLPI expects to fund $2.07B to Bally’s. GLPI and Bally’s have agreed to a strategic alliance on the Chicago casino and hotel tower construction development. GLPI’s principals have over three decades of construction development in the gaming and entertainment industry. On July 5, Bally’s took possession of the former Tribune Publishing site, located at 777 W. Chicago Avenue. This week, Brandenburg Industrial Service Company, the project’s demolition contractor, began preparing the site for demolition. The casino will offer space for approximately 3,300 slots, 173 table games and VIP gaming areas.

Sportradar (SRAD) and European Football governing body UEFA have announced a multi-year extension of their existing exclusive betting data rights agreement, expanded to include the non-exclusive right to distribute data to non-betting media. Additionally, the agreement provides Sportradar access to certain advanced tracking. This data will enhance Sportradar’s AI products and services, enabling Sportradar to deliver technology solutions to its clients. The agreement covers all UEFA Club and National team competitions. These include the UEFA Champions League, UEFA Super Cup, UEFA Europa League, UEFA Conference League, UEFA Women’s Champions League, UEFA Women’s EURO 2025, the European Qualifiers to the 2026 FIFA World Cup, the European Qualifiers to UEFA EURO 2028, the UEFA Nations League, the 2025 & 2027 UEFA European Under-21 Championships, and UEFA international friendly matches. In total, Sportradar can now offer more than 900 matches each season, marking a nearly 33% increase from the previous cycle as a result of the new formats which will be introduced for UEFA Club Competitions at the start of the 2024-25 season. UEFA and Sportradar will also extend their long-standing integrity partnership of 15 years. To support UEFA’s Anti Match-Fixing Unit, the cooperation includes intelligence and investigation resources, bet monitoring, and education services to support the prevention, detection and investigation of match-fixing.

MGM Resorts (MGM) announced a new partnership designating MGM Resorts as a “Proud Partner of the New York Yankees.” The two organizations will collaborate to deliver exclusive VIP experiences to MGM Rewards members and baseball fans, including the opportunity to watch batting practice from the warning track and throw out a ceremonial first pitch at Yankee Stadium. MGM Resorts will also have brand placement at Yankee Stadium on LED signage, first and third base rotational signage, and its logo appearing on the back of the pitcher’s mound during live local television broadcasts of select games.

Genius Sports (GENI) announced that funds advised by Apax Partners have fully monetized their equity interest in Genius Sports and no longer holds any shares in the company. The Apax Funds first acquired a majority interest in Genius Sports in September 2018 and have supported the company through a period of growth over the last six years

Super Group (SGHC) announced that, following the completion of an internal review, the company intends to undertake an exit plan for its sportsbook product in the United States. The company, along with relevant regulators and partners, will shortly begin the process to fully close its U.S. sportsbook operations in the nine states in which it is currently live. Super Group will, however, maintain its iGaming presence in the U.S. and plans to operate two iGaming brands from its Spin portfolio in both New Jersey and Pennsylvania. Super Group expects to incur costs and charges in connection with the closure of its U.S. sportsbook operation, information about which will be provided by management during the next quarterly earnings call, scheduled for early August. Such costs and charges, while not insignificant, will not have any impact on Super Group’s previously communicated capital allocation or operating plans. Non-U.S. earnings, which have historically been reported separately, will not be negatively impacted by this closure.

EARNINGS PREVIEW: Over the past 30 days, gaming stocks have shown mixed performance, according to Morgan Stanley. The firm’s coverage of gaming stocks has outperformed the S&P 500 by 6%, with individual stock performance ranging from a 20% gain to an 8% decline compared to the broader market. According to Morgan Stanley, Penn Entertainment (PENN) has performed well, while Wynn Resorts (WYNN) has struggled. Regarding valuations, consolidation in the industry could provide a near-term floor, but overall growth remains modest due to depressed valuations and investors should focus on stocks with potential catalysts or those likely to beat expectations, the firm told investors. One such pick is DraftKings (DKNG), which has approximately 35% upside and a potential capital return catalyst, according to the firm. Domestically, trends have improved sequentially. The Vegas Strip has seen “strong” gross gaming revenue, or GGR, and RevPAR, even with a comparison to the Super Bowl quarter. Vegas locals’ growth remains “solid,” while regional brick-and-mortar gaming is stabilizing. Internationally, Macau’s recovery has stalled due to China exposure. In contrast, Singapore continues to recover, driven by domestic growth prospects and increased inbound travel. Morgan Stanley is most bullish on DraftKings, Boyd Gaming (BYD), and Red Rock Resorts (RRR), while more cautious on Penn, Las Vegas Sands (LVS), and Sportradar. Price targets at the firm have been adjusted to reflect market dynamics. as follows:

• Sportradar increased to $12 from $11.50, reiterated Equal Weight rating
• Red Rock Resorts raised to $54 from $53, backed Equal Weight rating
• Penn Entertainment elevated to $21 from $20, kept Equal Weight rating
• Caesars (CZR) lowered to $41 from $43, maintained Equal Weight rating
• Boyd Gaming decreased to $66 from $68, reaffirmed Equal Weight rating
• Wynn Resorts lessened to $107 from $115, confirmed Equal Weight rating
• Las Vegas Sands reduced to $55 from $59, restated Overweight rating
• MGM Resorts dropped to $44 from $47, reasserted Equal Weight rating

DEAD ON ARRIVAL: Matthew Morgan, chairman of the Oklahoma Indian Gaming Association, revealed that despite Governor Kevin Stitt’s efforts to legalize sports betting during the last legislative session, there was minimal enthusiasm to turn it into a reality, according to Kennedy Thomason of Oklahoma Voice. Ongoing disagreements between the governor and the state’s tribes have hindered progress in this area. Morgan also noted that discussions on sports betting never gained traction due to industry-related disagreements. While the tribes would be open to discussing a deal within their existing compacts, they are not interested in signing new agreements or taking on unnecessary economic risk. Stitt’s proposal to legalize sports betting faced pushback from tribal leaders, who were not consulted during its drafting. “Any discussion of sports betting really never left the ground after that because there was just too much posturing, too much disagreement on how the industry worked,” Morgan said. He also noted his association, which has 25 member tribes, hasn’t seen any “real outreach” or efforts from state leadership to tribes on the subject. “I would also tell you, though, that from our perspective, we’ve not really seen the state Legislature or the Governor’s Office have an appetite for sports betting to date,” Morgan told Oklahoma voice.

ADDITIONAL ANALYST COMMENTARY: BTIG lowered the firm’s price target on DraftKings to $53 from $55 but reiterated a Buy rating on the shares. The firm is reducing its Q2 EBITDA estimate to $118M from $155M to reflect GGR and app download data, the Jackpocket deal, and the impact of higher Illinois taxes, the analyst told investors in a research note. BTIG added however that it remains constructive on DraftKings, seeing a favorable risk/reward, and would expect core holders to absorb dips into the $30-$35 range.

Jefferies adjusted the price targets on four names heading into second quarter earnings season. The firm dwindled its price target on Wynn Resorts to $96 from $111 and echoed a Hold rating on the shares, diminished the firm’s price target on Las Vegas Sands to $47 from $53 and echoed a Hold rating, upped its price target on Churchill Downs (CHDN) to $160 from $153 and restated a Buy rating and shrunk its price target on Caesars to $62 from $65 and rehashed a Buy rating on the shares. Given mixed fundamentals across Macau, Las Vegas, and regional markets, the firm remains “selectively constructive” on U.S. casinos into Q2 earnings, the analyst noted. The firm continues to expect better than expected strength in Las Vegas near- and long-term, an “uninspiring recovery” in Macau and Regionals to remain “choppy with isolated growth,” the analyst added.

BofA decreased its price target on Melco Resorts (MLCO) to $8.50 from $10.40 and maintained a Buy rating on the shares. The firm cited lower sector gross gaming revenue forecasts and slightly lower market share assumed following a softer June and says that while potentially weaker industry GGR growth is a new headwind, it continues to believe Melco is executing well in its turnaround.

Deutsche Bank lowered the firm’s price target on Wynn to $131 from $132 and kept a Buy rating. The firm expects another solid quarter from the quarter and says its growth trajectory remains compelling.

JPMorgan dropped its price target on Entain (GMVHF) to 900 GBp from 910 GBp and held onto a Neutral rating on the shares.

Goldman Sachs initiated coverage of Light & Wonder (LNW) with a Buy rating and A$190 price target. The firm initiated coverage on three Australia and New Zealand gaming companies, noting that it is most positive on the near to mid-term prospects within land-based gaming and is expecting ongoing share gains from the big three. Goldman prefers Light & Wonder to Aristocrat Leisure (ARLUF) given a greater risk-reward skew, the firm noted.

Macquarie curtailed its price target on Wynn Resorts to $126 from $128 and Las Vegas Sands to $58 from $60. The firm reasserted an Outperform rating on both stocks. June Macau gross gaming revenue of $2.2B was roughly 200 basis points behind recently updated Street expectations, which the firm attributes to one-time calendar shifts from major events and a more rational promotional environment. The firm is “slightly” lowering its company estimates to account for the softer results in Macau.

Lastly, Citi placed Melco Resorts on a “30-day positive catalyst watch” and reassessed a Buy rating on the shares with a $14 price target. The company’s EBITDA margin “will encouragingly hold up” quarter-over-quarter at 28%, which would imply that all six casino operators in aggregate remain sensible in terms of player reinvestments, the analyst told investors. The firm expects Melco to be the operator with the second-best quarter-over-quarter EBITDA improvement, mainly reflecting the expected sequential improvement in market share as a result of the more aggressive player marketing efforts.

PUBLICLY TRADED COMPANIES IN THE SPACE INCLUDE: Accel Entertainment (ACEL), Bally’s (BALY), Boyd Gaming (BYD), Caesars (CZR), Churchill Downs (CHDN), DraftKings (DKNG), Flutter Entertainment (FLUT), Gambling.com (GAMB), Gan Limited (GAN), Genius Sports (GENI), Las Vegas Sands (LVS), MGM Resorts (MGM), Penn Entertainment (PENN), Rush Street Interactive (RSI), Super Group (SGHC) and Wynn Resorts (WYNN).